MW This 100-year-old stock-market indicator just flashed a buy signal. Here's how investors should read it.

By Joseph Adinolfi

The Dow Theory signal triggered this week for the first time in more than a year

The Dow Theory indicator just triggered for the first time in more than a year. Here's what the bullish signal suggests.

A stock-market indicator that has been used by investment analysts for more than a century flashed a bullish signal this week.

For the first time in more than a year, the Dow Theory flashed a buy signal on Tuesday, when the Dow Jones Industrial Average DJIA and Dow Jones Transportation Average DJT both tallied record closing highs on the same day.

To technical strategists, this amounts to the latest sign that the bull market that began in late 2022 remains on solid footing, even if some highflying artificial-intelligence plays have struggled recently.

For the Dow industrials average, Tuesday marked its first record high since Jan. 5. But the Dow transportation average had gone much longer without a fresh record high; prior to Tuesday, its most recent record finish occurred on Nov. 25, 2024, according to Dow Jones Market Data.

"It confirms that the secular bull market is alive and well," said Ralph Acampora, co-founder of the CMT Association, during an interview with MarketWatch.

For the past two months, U.S. stocks have been caught up in a rotation trade that has seen some air come out of hot tech stocks like Nvidia (NVDA) and Broadcom $(AVGO)$ while boosting value stocks, cyclical names and shares of smaller companies included in small-cap and midcap indexes. Transportation stocks, in particular, have been big beneficiaries of this trend, Acampora pointed out.

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The takeaway is that investors are feeling optimistic about the U.S. economy, said Craig Johnson, chief market technician at Piper Sandler. With the Federal Reserve expected to cut interest rates and analysts penciling in broad-based earnings growth, investors are betting that stocks that have missed out on the red-hot AI trade could still have a pretty good year in 2026.

"I think there's no question the economy is moving in the right direction," Johnson told MarketWatch.

It also is worth noting that the Dow Theory trigger wasn't the only bullish signal to emerge from the U.S. equity market this week: The S&P 400 midcap index MID tallied its first record closing high since Dec. 11 on Tuesday, data showed.

What is Dow Theory?

Dow Theory is based on the assumption that the Dow industrials and the Dow transports have a symbiotic relationship, because transportation companies take and deliver what industrial companies make. The theory was first developed by Charles Dow, creator of both the Dow transportation and Dow industrials averages. (He also was the co-founder of Dow Jones & Co., which publishes MarketWatch and other financial publications, including the Wall Street Journal.)

For a bullish signal to be issued, both averages need to "confirm" a fresh record high in the other. The two record finishes don't need to happen on the same day, but they should occur close together, Acampora noted.

From the archives Don't dis the Dow Theory just because it's over 100 years old

Both averages have changed significantly since the indicator was first created more than a century ago. The Dow industrials now includes shares of financial-services and technology firms, not just industrial names. Similarly, the Dow transports includes ride-share giant Uber Technologies (UBER) and Avis Budget Group $(CAR)$, a car-rental company.

Yet the underlying logic behind the indicator still holds, Acampora said. When Dow first created the transportation average in the late 19th century, it was called the Dow Jones Railroad Average. Railroad stocks are still included in the transportation average, although they now share space with airlines as well as shipping and logistics firms like FedEx $(FDX)$ and United Parcel Service (UPS). The upshot: The transportation average remains squarely focused on companies that help move goods, and people, around the country.

Both Dow averages were in retreat on Wednesday. The Dow industrials were off by 391 points, or 0.8%, at 49,070 in recent trade. The Dow transports, meanwhile, were down 0.8% at 17,894.

-Joseph Adinolfi

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

January 07, 2026 15:28 ET (20:28 GMT)

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